On the Value of Changes in Life Expectancy: Blips versus Parametric Changes
AbstractPrevious studies indicate that the general public would prefer to reallocate medical resources from old people to young ones, and also has a low WTP for measures that increase the survival probability at an advanced age. In this paper, we present an analysis of the value of a ‘blip’, i.e. an immediate small reduction, in the hazard rate for a random sample of Swedes. Since the risk reduction is age-independent (2 ‘extra saved lives’ out of 10,000 during the next year), we can examine how the WTP and the implied value of a statistical life vary with age. We also show how blip data can be used to obtain a lower bound for the value of a parametric, i.e. permanent, change in an individual’s hazard rate. This approach avoids asking respondents to perform the tricky task of estimating, for example, their entire future survival and income paths, a task which is necessary in order to estimate the WTP for a change lasting over their remaining life cycle. The estimated willingness to pay as well as the implied value of a statistical life are very reasonable, The value of life exhibits an inverted-U shape with respect to age, peaking at the age of 40, and falls in the $3 to $7 million interval where most reasonable estimates are clustered according to Viscusi’s (1992) survey.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 152.
Length: 23 pages
Date of creation: Jan 1997
Date of revision:
Publication status: Published in Journal of Risk and Uncertainty, 1997, pages 221-240.
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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
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Web page: http://www.hhs.se/
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Willingness to pay; insurance; life expectancy; statistical life; ageing;
Other versions of this item:
- Johannesson, Magnus & Johansson, Per-Olov & Lofgren, Karl-Gustaf, 1997. "On the Value of Changes in Life Expectancy: Blips versus Parametric Changes," Journal of Risk and Uncertainty, Springer, vol. 15(3), pages 221-39, December.
- I10 - Health, Education, and Welfare - - Health - - - General
- I31 - Health, Education, and Welfare - - Welfare and Poverty - - - General Welfare
- D10 - Microeconomics - - Household Behavior - - - General
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
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